The petitioner company has presented this petition preferred under provisions contained under Section 391 to 394 of the Companies Act, 1956 [hereinafter referred to as “the Act”]. The petitioner company has prayed for sanction of the Court to the arrangement in the nature of Scheme of Amalgamation between the petitioner company and company named Kirsten Distributors Private Ltd. The petitioner company is transferee company under the provisions of the proposed Scheme. 2. According to the provisions of the proposed Scheme, the said other company i.e. the transferor company and the petitioner company have entered into the arrangement which is approved by the Board of Directors of both the companies and also by the shareholders. The transferor company and the transferee company are private limited companies and it is claimed that the public exposure by way of shareholding in either of the companies is NIL or almost minimal.
2.1 It is declared by the petitioner company that the registered office of the transferee company is situate in State of West Bengal and that therefore, the transferor company had taken out necessary and appropriate proceedings with reference to the proposed Scheme in the High Court at Calcutta and the learned Company Court having jurisdiction over the transferor company has, under order dated 20.7.2011, granted sanction to the proposed Scheme.
3. Earlier, the petitioner company had taken out an application being Company Application No.184 of 2011 wherein it was claimed that the company does not have any secured creditors and that therefore, there was no requirement to convent the meeting of secured creditors. It was also claimed that the unsecured creditors had given written consent declaring that they have no objection against the proposed Scheme and that therefore, under order dated 19.1.2011 passed in the said application, the Court permitted the petitioner company to dispense with the meeting of unsecured creditors. Similarly, in the said application, the petitioner company also claimed that the equity shareholders had also issued consent letters and that therefore, under the same order dated 19.1.2011, the Court allowed the petitioner company to dispense with the meeting of equity shareholders as well.
3.1 Thereafter, this petition was presented and after considering the petitions and submissions by the learned counsel, the Court admitted the petition for final hearing under order dated 21.4.2011. In compliance with the directions in the said order dated 21.4.2011, the notice of admission of the petition and the date of hearing of the petition were published by way of public advertisement issued in daily newspaper in Gujarati language and English language. Affidavit of publication of advertisement has been filed according to the claim of the petitioner.
4. The petitioner company has placed on record the Memorandum of Association and Articles of Association of the petitioner company. The main object of the petitioner company, as born out from the Memorandum and Articles of Association are, as under:-
“3.a To carry on the business to produce commercialize, develop, distribute, derive, discover, excavate, dig, drill, grade, handle, manipulate, mines, operate, prepare, promote, supply, import, export, buy, sell, turn to account and to act as agent, broker, concessionaires, consultant, mine owner, quarry owner, loader, unloader, transporter, collaborator, jobworker or otherwise to do deal any ferrous and non-ferrors metals, metal workers, belts, plates, flatsingots, billets, bars, angles, rounds, T-iron, squares, sheets, plates, coiles, hexagons, octagons, channels, bars, shaffting, joints, roads, structural, tubes, poles, forged components, accessorites, nuts, bolts, metal foils, circle, parts, steel round mails, tools, hardware, items, pipes, steel, wires, rails, rolling, materials, rollers, made wholly or partly of iron, steel, aluminum, alloys and metals required in or used for industrial, agricultural, transport commercial, domestic, building power-transmission, oil-fields, communication.”
4.1 So far as the purpose and rational of the scheme are concerned, it is averred by the petitioner that the purpose of the proposed Scheme is for optimizing benefits which are as under:-
“11.1 The interest of the existing employees of the Transferor Company shall be protected with continuity of employment, better utilization of manpower and an opportunity for enhancement of technical knowledge and expertise being provided.
2. The other assets including current assets of the Transferor Company which were under-utilized, shall be properly, gainfully and efficiently utilized which would augment the asset base and thereby resulting in the optimal utilization of the resources and greater revenue inflow.
3. The consolidated entity shall provide strategic and competitive advantage to achieve its desired object. The proposed amalgamation of the Transferor Company with the Transferee Company is in line with current global trends to achieve size, scale, integration and greater financial strength and flexibility. The consolidated entity is likely to achieve higher long term financial returns than could be achieved individually by the Transferor Company.
4. The proposed amalgamation of both the companies will bring administrative and operational rationalization, organizational efficiencies and rationalization in economics of scale and more optimal utilization of various resources. The managerial expertise of Transferor Company would be combined giving additional thrust to the Transferee Company. The synergies created by the merger may increase operational efficiency and integrate marketing functions. This would contribute towards enhancement of shareholders value of the Transferee Company.”
4.2 The relevant provisions which emerge from the proposed Scheme are in Clause-6 which relates to contracts, deeds, bonds and other instruments, clause-7 which makes provision for legal proceedings and clause-9 which makes provision affecting the staff, workmen and employees of the company. The said clause-6, 7 and 9 read thus:-
“6. CONTRACTS, DEEDS, BONDS AND OTHER INSTRUMENTS:
Subject to other provisions contained in the Scheme, all contracts, deeds, bonds, debentures, agreements and other instruments of whatever nature, to which the Transferor Company is a party, subsisting or having effect immediately before the Effective Date, shall remain in full force and effect, against or in favour of the Transferee Company, as the case may be, and may be enforced as fully and as effectually as if, instead of the Transferor Company, the Transferee Company had been a party thereto. Any inter se contracts between the Transferor Company and the Transferee Company shall stand merged and vest in the Transferee Company upon the sanction of the Scheme and upon the Scheme becoming effective.
7. LAEGAL PROCEEDINGS If any suit, writ petition, appeal, revision or other proceedings of whatsoever nature (hereinafter called “The Proceedings”) by or against the Transferor Company be pending, the same shall not abate, be discontinued or be in any way prejudicially affected by reason of the amalgamation of the Transferor Company or of anything contained in the Scheme, but the Proceedings may be continued, prosecuted and enforced by or against the Transferee Company in the same manner and to the same extent as it would be or might have been continued, prosecuted or enforced by or against the Transferor Company as if the Scheme had not been made. On and from the Effect date, the Transferee Company shall and may initiate any legal proceedings for and on behalf of the Transferor Company.
9. TRANSFEROR COMPANY'S STAFF, WORKMEN AND EMPLOYEES All the staff, workmen and employees, in the service of the Transferor Company, on the date immediately proceding the Effective Date of the merger shall become the employees of the Transferee Company on the basis that:
a. their service shall have been continuous and shall not have been interrupted by reason of the amalgamation of the Transferor Company on the terms and conditions not les favourable than those subsisting with reference to their employment in the Transferor Company and without entailing any break in the continuity of service to the intend and effect that such employees had always been the employees of the Transferee company. The position, rank and designation of the employee would be decided the Transferee Company.”
4.3 In clause-10 of the proposed Scheme, the provision with reference to the transaction which may be entered into between appointed date and effective date are made. While clause-5 of the proposed Scheme, clarifies the details regarding consideration. It is mentioned in clause-5 of the proposed Scheme that:-
“The transferor company is the wholly owned subsidiary of the transferee/petitioner company and that therefore, the entire share capital of the transferor company is held by the transferee company. Consequently, in consideration for the transfer and vesting of the entire undertaking, the transferee company shall not issue and allot any equity shares to the shareholders of the transferor company.”
4.4 Upon receipt of the notice directed to be issued by the Court, the Regional Director has filed affidavit dated 11.7.2011. Since the petitioner company would be the surviving company, notice to the Official Liquidator was not required.
4.5 The Regional Director, in his above mentioned affidavit, has, in substance and in effect made three observations and offered his remarks. They are contained in para-2(a) to 2(c). The petitioner company has, so as to respond to the said observations and remarks by the Regional Director, filed additional affidavit dated 24.8.2011 through one Mr. Kishorchand Kakaram Bansal, one of the directors of the company.
4.6 In paragraph-2(a) of the affidavit, the Regional Director has observed that:-
“.... the Scheme of Amalgamation annexed to the Petition does not contain any provision for alteration of the Capital clause of the Memorandum of Association of the Petitioner Company, for the aforesaid addition to the authorized share capital, without any further act, deed and procedure. It is further submitted that the Memorandum of Association of a company, can be altered only after complying with the provisions of Section 16 r.w. Section 192 of the Companies Act, 1956 and payment of requisite filing fees on the prescribed forms to be filed with the office of the Registrar of Companies...”
4.7 While offering the further comment and making observations with regard to the provisions and the Scheme, particularly clause- 11 of the scheme, the Regional Director has observed that:-
“(b) ......Clause No.11(e) of the Scheme is not in accordance with AS-14 r.w. Section 211(3A) of the Companies Act, 1956. It is further submitted that the Accounting entries/adjustments, as a consequence of the Scheme of Amalgamation, are to be made as per the Accounting Standard-14 notified by the Central Government under Section 211(3A) of the Companies Act, 1956 ”
4.8 Another objection made by the Regional Director is found in para-2(c) of the affidavit which reads thus:-
“(c) it has been stated that the Petitioner company is engaged in the business to produce things which is made wholly or partly of iron, steel, aluminum and metals, whereas while furnishing the information to the office of the Deponent it has been stated that the Transferee company has not yet started any activity.
The Petitioner company subsequently vide its letter dated 2- 7-2011 addressed to the office of the Deponent, clarified as under:-
“The Company has not started any commercial or business activity since its incorporation viz. July, 2006 which is very much apparent from the financials the company had submitted with your good office. However, the purpose of stating that 'the Company is engaged in the business' at Para 4 of the Petitioner before the Hon'ble High Court of Gujarat, was just to convey the meaning that the Company's main object is to carry on the said business of producing things which is made wholly or partly of iron, steel, aluminum, metals, etc. In facts, the company has not carried out any activity yet and we request your office to construe the meaning accordingly.”
5. With reference to the Regional Director’s observation in para- 2(a) of his affidavit, the petitioner company has in its additional affidavit declared that if the Scheme is sanctioned by the Court, then, the petitioner company shall for the purpose of bringing the Memorandum of Articles of Association and Company’s authorized and paid-up share capital in consonance with the resultant situation, make necessary and appropriate alteration in its Memorandum and Articles of Association. The petitioner company, through its director, has declared in its additional affidavit that:-
“3. ....the Company affirms to comply with the provisions of Section 16 read with Section 192 of the Companies Act, 1956, which states to increase the authorized share capital of the Company by filing Form No.5 viz. notice of increase in capital along with E-form No.23 intimation to Registrar of Companies, Gujarat (Ministry of Corporate Affairs) for such increase in the capital pursuant to the order of the Hon'ble High Court of Gujarat aty Ahmedabad and accordingly we most humbly request the Hon'ble Court to pass an order accordingly subject to the stipulation of the compliance of Section 16 read with Section 192 of the Companies Act, 1956, within stipulated period as mentioned in the Act as soon as the order is passed.”
5.1 However, so as to remove any doubt and for clarification, it is directed that the petitioner company shall comply the provisions contained under Section 16 r.w. Section 192 of the Act and alter its Memorandum of Articles in accordance with the said provisions.
5.2 With reference to the Regional Director’s observation and objection on the ground that there is no compliance so far as accounting standard 14 is concerned, the petitioner company has through its director – deponent of the additional affidavit declared that:-
“4. .... the company states that as mentioned in clause 11(e) of the Scheme, the company further confirms and undertakes to comply with the accounting standard 14 i.e. accounting for amalgamation as recommended by the Institute of Chartered Accountants of India read with provisions of the Companies (Accounting Standard) Rules, 2006 and in accordance with Section 211(3) of the Companies Act, 1956, which deals with every P & L account shall comply with the accounting standards and treatment in the books of account of the transferee Company shall be made accordingly to reflect true financial position of the assets and liabilities transfered of the transferor Company, financial statement consequently upon passing the order by the Hon'ble Gujarat High Court ”
5.3 It is, however, considered appropriate, despite above mentioned stipulation by the company, to direct that the petitioner company shall make necessary and appropriate adjustment in their books of account in accordance with accounting standard 14 notified by the Central Government under Section 211 (3A) of the Act.
6. In light of the averments made in para-4 of the petition where, the petitioner company averred that it is engaged in business manufacturing Articles made wholly or partly of iron, steel, aluminum and such metals, the Regional Director has raised objection on the ground that in the information furnished by the company in the office of Regional Director, it was declared that the transferee company has yet not commenced any activity. The Regional Director, therefore, found the averments in para-4 of the petition contrary to the details put before the Regional Director. It, however, appears that the petitioner company vide its letter dated 2.7.2011 clarified the averments made in para-4 of the petition. The explanation given by the company vide its letter dated 2.7.2011 is mentioned by the Regional Director below his comments in para-
2(c). It is noticed that the Regional Director seems to be satisfied with the said clarification. Furthermore, though it is true that the said factual position is slightly curious inasmuch as though more than 5 years have passed since its incorporation in July-2006, the petitioner company has not commenced any activity and yet the transferee company is proposed to be amalgamated with the petitioner company whereby the petitioner company will acquire the business, the assets and the properties of the transferor company without payment of any consideration. However, in view of the fact that both the companies are private limited companies and are closely held companies, public exposure by way of shareholding in the said companies appears to be NIL or almost minimal and negligible and secondly in view of the fact that the transferor company is a wholly owned subsidiary of the transferee company and the entire share capital of the transferor company is held by the transferee company, it appears that there cannot be any objection on this ground against the proposed scheme, more so when, the Central Government has also not found the proposed scheme objectionable and while considering the request of the transferor company, the Official Liquidator as well as the Regional Director/Central Government did not find the scheme objectionable and the petition preferred by the transferor company seeking sanction for the scheme is already granted by the learned Company Court. Having regard to the aforesaid facts, and since the Regional Director has found the explanation vide letter dated 2.7.2011 acceptable, the aforesaid aspect is not treated as objectionable.
6.1 On this count, it is relevant to observe that on the basis of the report of the Registrar of Companies, the Regional Director has averred in his affidavit that any complaint or representation from the shareholders or creditors or any other interested person has not been received. The Regional Director has also observed in his affidavit that, “..... there appears no other objection to the proposed scheme of amalgamation of the Transferor Company with the Petitioner Transferee company and the Petition does not, prima facie appear to be prejudicial to the interest of the shareholders of the Petitioner Transferee Company and the public at large.”
6.2 Thus, on overall consideration, it has emerged that the proposed Scheme of Amalgamation would not be prejudicial to the interest of the companies and their members and creditors or public interest, prayers in terms of paragraph 22(A) of present petition are hereby granted and the Scheme in its modified form is hereby sanctioned, subject to the clarifications and directions in this order. It is also clarified that this order is also subject to compliance of all applicable provisions under all applicable laws, Rules and regulations including the provisions of Stamp Act & Registration Act and the petitioner shall, if required by law, pay, on implementation of Scheme, requisite stamp duty and get the order registered in accordance with applicable provision. The company shall also obtain all necessary permissions, licences, registrations, as may be required on implementation of the Scheme.
6.3 So far as the costs to be paid to the Central Government’s Standing Counsel is concerned, it is quantified at Rs.7,500/- and the same may be paid to Standing Counsel for Central Government, Mr. Champaneri.
The company petition No.66 of 2011 is, accordingly, be and hereby allowed, subject to the abovementioned clarifications and directions.
(K.M.Thaker, J.) kdc